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2016 (10) TMI 1094 - AT - Income TaxDisallowing claim of Bad Debts - accounting treatment to debt - Held that:- In the present case, the debt has been written off in the sense that account of the debtor is squared up by crediting the debtor and debiting the bad debt reserve account. This accounting treatment, in our considered view, does amount to actual writ off of the debit. However, since this entry does not touch upon the profit and loss account at this stage directly, the authorities below have declined to treat it as a write off of the debts. What is overlooked in the process is that provision, which is partially squared up in this year to the credit of the debtor, was created in earlier years to the debit of profit and loss account but added back as provision is not tax deductible. As regards the learned CIT(A)’s reference to proviso to section 36(1)(vii), which, in turns, refers to section 36(1)(viia), to provisions made under section 36(1)(viia) which admittedly is not the case here. In view of these discussions, as also bearing in mind entirety of the case, the grievance of the assessee must be upheld. Accordingly, disallowance of deduction for bad debts is deleted. - Decided in favour of assessee. Excess provision of interest payable written back - provision was never claimed as deduction - Held that:- CIT(A) has justified the same by observing that “considering these facts, reversal of interest expense is income under section 41(1) of Income Tax Act” but then section 41(1) comes into play only when “an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee.” In the case before us, the provision was never claimed as deduction as it was added back in the computation of income. Clearly, section 41(1) has no application in the matter. When provision was never claimed as deduction, there cannot be any occasion to bring to tax reversal of such a provision. The entire exercise of creating this provision, and reversing the same – partly or fully, is completely tax neutral. The fact that income was eligible for deduction under section 80P, even if that be so, is wholly irrelevant in this context. In view of these discussions, we uphold the grievance of the assessee. Additions deleted - - Decided in favour of assessee.
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